The 'bezel' is the inventory of hidden, fraudulent wealth that builds up during good economic times. Investor overconfidence, plentiful capital, and lax due diligence create the perfect environment for financial scams to flourish, with this phantom wealth only being discovered during a downturn.

A more significant danger than insider trading is that individuals in power could actively manipulate real-world outcomes to ensure their bets on a prediction market pay out. This moves beyond leveraging information to actively corrupting decision-making for financial gain, akin to throwing a game in sports.

Acknowledging a de facto government backstop before a crisis encourages risky behavior. Lenders, knowing their downside is protected on AI infrastructure loans, are incentivized to lend as much as possible without proper diligence. This creates a larger systemic risk and privatizes profits while socializing eventual losses.

The South Sea Company, the British government, and investors were all incentivized to push the stock price higher. The company could issue fewer shares, the government reduced interest payments, and investors saw immediate paper gains, creating a circular logic where a rising price justified itself.

Despite recent concerns about private credit quality, the most rapid and substantial growth in debt since the GFC has occurred in the government sector. This makes the government bond market, not private credit, the most likely source of a future systemic crisis, especially in a rising rate environment.

Governments with massive debt cannot afford to keep interest rates high, as refinancing becomes prohibitively expensive. This forces central banks to lower rates and print money, even when it fuels asset bubbles. The only exits are an unprecedented productivity boom (like from AI) or a devastating economic collapse.

Instead of a moral failing, corruption is a predictable outcome of game theory. If a system contains an exploit, a subset of people will maximize it. The solution is not appealing to morality but designing radically transparent systems that remove the opportunity to exploit.

Both the Bush and Clinton administrations promoted policies to increase homeownership, pushing banks to lower lending standards. This government-led initiative, aimed at social goals like ending redlining, fueled the subprime mortgage bubble that ultimately collapsed the financial system, implicating policy makers alongside banks.

Bubbles provide cover for fraudulent activities, as rising prices mask underlying problems. In cases like the South Sea Company and Railway Mania, it wasn't until after the collapse that the full extent of financial engineering, corruption, and deception came to light, by which point it was too late for most investors.